Bulkowski’s Triple Bottoms

Written by and copyright © 2005-2009 by Thomas N. Bulkowski. All rights reserved.

For more information on this pattern, read Encyclopedia of Chart Patterns, Second Edition, pictured on the right, pages 765 to 778. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.

Triple bottoms are somewhat rare chart patterns. That makes sense because three peaks seldom line up like soldiers at attention. They have a low break even failure rate and decent average rise in a bull market, giving them a solid performance rank.

Identification Guidelines

Trading Tips

Trading Tactic Explanation Measure rule Compute the height from the highest peak (point A in The Measure Rule figure to the right) to the lowest valley in the pattern (B) then multiply it by the above “percentage meeting price target.” Add the result to the breakout price (the highest peak in the pattern, A) to get the target, C. Big W Look for a triple bottom with a tall left side, one with a steep decline and few or no price consolidations along the way. Expect price to return to near where the downtrend began. Confirmation Wait for confirmation – price to close above the peak between the valleys (point A in the Measure Rule figure to the upper right). Triples are rare, so price often continues down without confirming the triple bottom. Rise If the rise between the first two bottoms is higher than the rise between bottoms 2 and 3, draw a down-sloping trendline connecting the tops. When price crosses this trendline, buy. The Trendline figure to the right shows an example. Flat base Expect a large rise if the triple bottom appears after a long, flat base. Use the weekly scale to find the flat base – the triple bottom will look like a pothole in a road. The Flat Base figure to the right shows an example. MMUs Triple bottoms can appear as the corrective phase of a measured move up. The breakout move may be less than you expect. Up trend Avoid triple bottoms that appear after an extensive up trend. The breakout is apt to result in a disappointing move. Declines Triple bottoms with short-term (less than 3 months) decline leading to the pattern perform best post breakout. Peak If a triple bottom appears after a peak, the post breakout rise is apt to stall at the peak. Shelf A third bottom that appears flat tends to support prices. When price rises above the top of this shelf, buy. The Shelf figure to the right shows an example. Last valley If the last valley bottom is above the second valley bottom, then expect better performance. The Shelf figure shows an example of this when bottom B is above bottom A. Throwbacks Throwbacks hurt post breakout performance.

The Measure Rule   Trendline   Flat Base   Shelf

Example

The above figure shows an example of a triple bottom chart pattern. The three bottoms (1 , 2 and 3) are at nearly the same price. Although bottom 3 appears to be well above the other two, the price scale suggests they are close to each other. The green confirmation line shows where the three bottom chart pattern becomes a true triple bottom.

-- Thomas Bulkowski

Copyright © 2005-2009 by Thomas N. Bulkowski. All rights reserved. I didn’t fight my way to the top of the food chain to be a vegetarian.